Hitting the Road with Tesla (TSLA); Merrill Lynch Remains Bearish on the Stock

Merrill Lynch analyst John Murphy is out today with a new research note on shares of Tesla (NASDAQ:TSLA), after hosting investor meetings with the electric car giant’s team, featuring Aaron Chew, Senior Director of Investor Relations. The meetings focused on various topics such as Model 3 production sustainability, China market and more.

Tesla put all hands on deck, including the construction of a General Assembly “tent” in the parking lot to manage 5,031 Model 3’s in that last week of the quarter, which was in-line with management’s target of 5,000/week that was reiterated last month at the annual shareholder meeting. However, Murphy points out that although the company is confident in the sustainability of its production rate, based on its past challenges in ramping up production, he remains somewhat skeptical and believes it will take some time before the Model 3 production reaches material scale.

Yesterday, Tesla’s CEO Elon Musk confirmed a deal with the Shanghai government to contrast a new auto plant in Shanghai. Tesla has planned to produce the first cars after two years of the construction of its Shanghai factory reaching an approx. number of about 500,000 vehicles.

Murphy commented, “TSLA is not disclosing the potential $ investment at this point for the car/battery facility, although IR noted that it will likely be funded similarly to past ventures. In our view, this is a prudent move to not only tap into the largest electric vehicle market, but also to mitigate trade risk in light of escalating trade war tensions globally. Also of note, in response to tariffs imposed by the US, China recently raised the tariff on US-manufactured vehicles imported into China to 40%, which forced TSLA to materially raise prices on its vehicles sold in the China market.”

Net net, Murphy reiterates an Underperform rating on Tesla stock, with a price target of $180, which represents a potential downside of 44% from where the stock is currently trading. (To watch Murphy’s track record, click here)

How does Murphy’s bearish stance weigh up against the word of the Street? It appears other voices are not willing to bet on Musk’s brainchild as well, as TipRanks analytics demonstrate TSLA as a Hold. Based on 22 analysts polled in the last 3 months, 7 rate Tesla stock a Buy, 8 issue a Hold, while 7 recommend a Sell on the stock. The 12-month average price target stands at $301.35, marking a nearly 6% downside from where the stock is currently trading.

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